Key Learnings from AllianceBernstein and Columbia University Climate Change and Investment Academy

At the JANA Conference in 2020, Sharon Fay, Chief Responsibility Officer at AllianceBernstein (AB) presented a session in which she spoke about Climate Change and said that AB had put all its investors through a climate curriculum co-designed with Columbia University.

In early 2021, AB opened this curriculum up to external investors and Tim Conly, Head of Responsible Investment Research at JANA, Michael Gillespie and I undertook the course in March and April.

The course consisted of six modules which were:

  • Introduction to Climate Science;
  • China’s Policy and Global Implications;
  • Climate Litigation and Liability;
  • Climate and COVID-19;
  • Climate Solutions Panel; and
  • Incorporating Climate into the Investment Process.

The modules consisted of pre-recorded videos and live Q&A sessions with relevant experts from Columbia University and AB.  AB ran a live training session based on the final module for all JANA staff.

While it is impossible to concisely summarise all we took away from the course, our key learnings were:

  • There are a wide variety of indicators that confirm the temperature of the atmosphere is rising, including glaciers melting, crops starting earlier, frost coming later and satellite surface temperature measurements.  Climate scientists have also applied rigorous back testing to help differentiate the impact of natural geological events and humankind-induced warming effects, with clear evidence that the key driver has been humankind.
  • Along with the well-known dangers of global warming from carbon emissions, there are concerning feedback loops in the climate system.  Higher temperatures lead to the warming of oceans, which reduces their ability to absorb carbon dioxide, which in turn leads to higher temperatures.  It is therefore highly critical that humankind significantly reduce its carbon emissions to limit the further damage from these feedback loops.
  • There is no climate change solution without China.  China is currently the largest global emitter but in cumulative terms has emitted less than half than the US.  The success, or otherwise, of the world in this endeavour will significantly hinge on China’s policy and its influence over other parts of the world through its One Belt One Road policy.  There are signs of hope given the dramatic economic changes in China since the 1970s but it will need to make similarly dramatic changes in order to meet its 2060 carbon neutrality target.
  • There is significant litigation occurring in the field of climate and Australia ranks second only to the US in terms of the number of legal cases.  These are expected to increase and the potential liability for those that do not take appropriate action in relation to climate change are very significant.
  • There is a lot that we can learn about climate change from our experience in the COVID-19 pandemic.  We will need to show a similar level of resilience and adaptability over an extended period of time in order to meet the challenges of climate change.
  • Humankind will need to incorporate a wide range of solutions in order to address climate change.  This includes carbon capture and storage, which has been achieved and will need to be part of the solution for the portion of carbon emissions that cannot be eliminated.  It also includes hydrogen as a flexible alternative solution to de-carbonise many industrial and energy processes.  The commercial opportunity in some instances is compelling as hydrogen is the only viable solution and the quantity required is significant.
  • While there are significant uncertainties in incorporating the physical, transitional and other risks of climate change into investments, we must not let perfect be the enemy of good and we must factor climate change into our investment advice and decisions.  While the physical changes to the climate are likely to continue to progress relatively slowly, the impact of these risks on investment markets may be swift and of great magnitude.  Investment managers will need to look beyond the obviously impacted companies through the whole value chain, including those with advantages for the transition as well as others not responding adequately to the inherent risks.

What does this all mean for our client portfolios?

Climate change is very likely to be the critical issue for client portfolios over the decades ahead as humankind endeavours to address climate change risks and significant physical and transitional changes occur in our world and economy.  It is important that the risks arising from climate change be taken into account in investment decisions taken today, ahead of those risks being priced into investment markets.

What is JANA doing?

  • We have incorporated climate change scenario analysis into all reviews of investment strategy for clients, with the support of specialist researcher Climate Insight;
  • We assess climate change risk in our meetings with investment managers and in our review of specific assets for Direct Investment Unit (DIU) clients;
  • We assess the exposure of client portfolios to climate change risks utilising company/issuer level Environmental, Social and Governance (ESG) and carbon related data;
  • We are working with clients to incorporate climate change into their internal policies and to set and achieve commitments to carbon reduction in their portfolios.

If you have any questions about climate change, please reach out to your JANA consultant.

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JANA respectfully acknowledges the Traditional Custodians of the land where we work and live. We pay our respects to Elders past, present and emerging. We celebrate the stories, culture and traditions of Aboriginal and Torres Strait Islander Elders of all communities who also work and live on this land.